Egypt - The Way Forward

The American Chamber of Commerce held a special Luncheon in honor of its guest H.E Dr. Atef Ebeid, at the Conrad Cairo Hotel to speak on the topic “Egypt: The Way Forward”. Mr. Mohamed Mansour, President of Amcham Egypt, introduced the Dr. Atef Ebeid, thanking him for his visit and recognizing that this was the second Prime Minister to ever talk to the Chamber since its inception.

Dr. Ebeid started off his speech by commenting on the title of the topic, stating that this indeed was a good time to talk about Egypt’s Way Forward as part of a bigger picture, completed with Egypt’s Way Forward to Peace, Development, and Prosperity. He then went on to do an inventory of Egypt’s economic conditions for the past ten years when efforts of stabilization were just kicking in. This was a time when social and economic reforms were going very well, producing favorable conditions to enlarge the number of entrepreneurs, to increase the progress in the areas of privatization, liberalization, and modernization, while still maintaining a social safety network for the poor.

However, in 1998, the Egyptian economy became subject to both internal and external pressures, leading to many imbalances. The Egyptian government covered these imbalances through delaying the payment of arrears.  Simultaneously, due to the pressures, there was a decline in tourism, a decrease in both local investment and FDI, a slow down in the privatization process, and a decrease in the balance of trade as a result of pegging the Egyptian pound to the dollar. As international pressures mounted, banks began to streamline credit and government budget revenues were not flexible. On the private sector front, there was heavy investment at a time when many enterprises were not ready for competition causing private entrepreneurs to borrow even more heavily. Moreover, the pressures in the labor market were mounting, as the number of graduates increased yearly with a growing population.  

Dr. Ebeid stated that the government decided that its first priority would be the payment of the debt, learning that it should always live up to the resources available. However, with a total annual budget of LE140 billion, the government has lots to spend on a booming population, allotting LE175 per citizen to sustain a police force, an effective judicial system, a good education system, amongst other needs. The government is directly responsible for subsidies for 8 million families. Furthermore, money has to be spent on public investment for infrastructure, also in investment in public enterprises and public economic authorities. Thus, while the government may have LE200 billion of assets in terms of public enterprises, it also carries them in debt. The Prime Minister asserted that the government is trying to push the public authorities out of the budget, carrying over their debts to investment banks that can manage and restructure them. 

Moving on to the issues of direct interest to the business community, Dr. Ebeid spoke of tax and customs reform. Promising that the bill on tax reform was in its medium term stage and will allow for a more uniform and simpler tax system. More importantly, the tax law will provide for fair treatment. Similarly, he asserted the need to restructure customs administration to modernize it more, promising dramatic administrative and managerial changes in the future of the customs process.  

The Prime Minister then proceeded to give an assessment of the exchange rate situation. In 1999, the national reserves were used to cover the deficit, but matters were made worst with the decrease of exports and the increase in imports, coupled with a decline in both tourism and FDI. With the September 11 attacks, the situation became even more serious, and devaluation became a pressing necessity. Dr. Ebeid asserted that the foreign exchange has to be flexible, and he repeatedly emphasized that while the government will continue to influence the foreign exchange market through policy, it will never administer or fixate it. He also avowed that the government would act forcefully against any attempts to speculate on the Egyptian pound.

In the medium run, the Prime Minister stated that there was a need to increase capital flows for investment. The government is encouraging any foreign currency generating projects and welcomes all BOT projects. The government is working on an environment conducive to FDI through updating its policies. It wants to encourage firms to be more competitive; moreover, the government plans to act as a facilitator to open up export markets and to establish trade agreements and missions for the private sector, affirming the need for an increase in the number of traders. Furthermore, Dr. Ebeid saw that Egypt has a really good chance in terms of significant export services through the tourism sector. Fortunately, there have also been very promising discoveries in the oil and gas sector, totaling $29 billion. One third of gas and oil discoveries will be used for consumption, one third will be used for exports, while the remaining third will be safe guarded for future use.  

For the coming year 2002-2003, the Prime Minister stated that the government predicted that the economy would grow at 4%. The reasons for that are the following: the global recovery in the tourist sector, the new discoveries in the energy sector, the high yield of crops in the agricultural sector, and the recuperation of the construction sector. To further demonstrate future growth, Dr. Ebeid pointed to a 6% increase in the annual consumption of electricity and oil, meaning that there was an increase in the output of working hours.  

The Prime Minister went on to state that next year’s budget is the biggest budget yet for Egypt with a planned $7 billion increase. The increase will go on improvements in the education system and the medical health care system. He also expected progress in privatization, stating that the government will begin to sell at reasonable prices, and if it fails to sell some enterprises, it would lease them to the private sector.  

Dr. Ebeid then outlined the two basic challenges facing Egypt right now: 1. Providing an environment to unleash the energy of the local and international private sector. 2. Fighting unemployment and rural poverty. The first challenge may be resolved through the strengthening of governmental institutions to support effective private sector activity. The Prime Minister also recommended the signing of more international cooperation agreements and the formulation of more business alliances. On the other hand, he stated that the second challenge was quite a heavy assignment. Hoping that this would be the last generation that would have to live in a “third world country”, Dr. Ebeid put continuous emphasis on education and training.  

The Prime Minister proceeded to give specific recommendations for many pressing issues. Amongst those issues was the combating of fiscal imbalance, maintaining political and social stability, the scarcity of qualified competent management, the need for more capital, and the need for a more liberal society. Step one focused on the increased need to liberalize and restructuring publicly owned enterprises. Step two focused on public investment, but with an increased emphasis on private investment. Step three focused on judicial reform, and the passage pf the IPR law. Step four focused on the reform of the bureaucracy. The Prime Minister ended his speech on the note that the future was indeed sure because of the resources Egypt has available to it. 

Question and Answer:

Asked by Mr. Mohamed Ozalp, Executive Vice-President of Amcham, and Mr. Curtis Ferguson, Executive Vice-President of Amcham, Dr. Ebeid answered as many questions as time would permit. The first question revolved around Egypt’s desire for an FTA with the U.S.; how such an agreement depended on the passage of the IPR law, and what the status of the law was at the moment. Dr. Ebeid replied that the law was in Parliament with ongoing verification of 420 articles, and should be verified before the end term of this year; thus, it is progressing slowly but surely. The second question was that laws seemed always to be diluted by the time of their passage and what the business community could do about that. The Prime Minister stated that he encouraged business associations to comment on Draft laws, putting emphasis on needed changes that they saw, and following –up discussions with Parliament. The last question focused on certain sectors, such as the Pharmaceutical industry, being hurt by the recent devaluations, coupled with their inability to raise the prices of their products. Dr. Ebeid responded that the pharmaceutical industry was a particularly special case because of the population’s need for certain essential drugs, so prices must be based on affordability. He recommended that the industry should introduce new products to compensate for its losses on essential drugs; while, proposing ways on how the industry may be modernized with an outlook of rationalizing imports of the industry.

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